[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
	England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Petroleo Brasileiro S.A. & Anor v Petromec Inc & Ors [2005] EWHC 2430 (Comm) (03 November 2005) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2005/2430.html Cite as: [2005] EWHC 2430 (Comm)

[New search] [Printable RTF version] [Help]

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		3rd November 2005

Lord Justice Moore-Bick:

1. I have before me an applications by Petroleo Brasileiro S.A. ("Petrobras") and Braspetro Oil Services Company ("Brasoil") under section 51 of the Supreme Court Act and CPR rules 19.4 and 48.2 for orders that Maritima Petroleo e Engenharia Ltda ("Maritima"), Devonshire Holdings Ltd ("Devonshire") and Mr. German Efromovich be added as parties to two actions, 2002 Folio 4 and 2002 Folio 308, for the purposes of costs only and for orders that they be jointly and severally liable with Petromec Inc ("Petromec") for the costs of Petrobras and Brasoil which Petromec has already been ordered to pay.
2. The applications arise out of substantial litigation between Petromec and Petrobras relating to the purchase, upgrading and subsequent total loss of a semi-submersible oil production platform originally called Spirit of Columbus and later re-named P36. The circumstances which gave rise to the litigation and the relationship between the various parties to the venture are described in some detail in judgments I delivered on 2^nd February 2004 (2002 Folio 4) and 20^th May 2004 (2002 Folio 308) and need not be repeated here. For reasons which appear from those judgments and are well-known to the parties no distinction is to be drawn for present purposes between Petrobras and Brasoil and I shall therefore refer to them both simply as "Petrobras".
3. The first of the actions, claim 2002 Folio 4, arose out of the arrangements for the purchase and upgrade of the vessel and has therefore become known for convenience as the "Upgrade" action. In that action Petromec is seeking by one means or another to recover a very large sum of money which it says is due to it in respect of additional costs which it incurred as a result of the radical change in the upgrade specification necessary to render the vessel suitable for operations in the Roncador field instead of the South Marlim field as had originally been planned. In my judgment in that action I dealt with a large number of preliminary issues, most of which arose out of the complex contractual arrangements between the parties. As a result of my decisions and the subsequent unsuccessful appeal Petromec has been ordered to pay 80% of the costs incurred by Petrobras at first instance and the whole of the costs incurred in connection with the appeal.
4. The second action, claim 2002 Folio 308, concerned the division among the parties to the venture of the proceeds of insurance that became payable following the total loss of P36. It has therefore become known as the "Total Loss" action. As a result of my decisions in that action Petromec was ordered to pay the costs incurred by Petrobras in relation to one self-contained issue relating to the insured interests in the vessel and Petromec and certain other parties to the action were ordered jointly and severally to pay the costs incurred by Petrobras in relation to the remaining issues, with one minor exception. Following an appeal, which was successful in one respect, Petromec was ordered to pay the bulk of the costs incurred by Petrobras in relation to that appeal.
5. No attempt has yet been made to have the costs covered by the orders made in either the Upgrade or the Total Loss action assessed. The total costs incurred by Petrobras in the Upgrade action at first instance are said to amount to over £2.4 million, 80% of which comes to something over £1.9 million. Petromec has provided security for the costs of that action in the sum of £1 million, so it is likely that following a detailed assessment Petrobras will be entitled to recover an amount substantially in excess of that for which it is secured.
6. The costs incurred by Petrobras in the Total Loss action are not quite as large, amounting to a little over £1.3 million. Again, that sum may be reduced on a detailed assessment, but Petrobras is holding no security for those costs so it is inevitable that following a detailed assessment it will be entitled to recover a substantial sum for which it is unsecured.
7. The appeals in the Upgrade and Total Loss actions were heard together. The costs incurred by Petrobras in relation to those appeals amount to a little under £88,000, but they too have yet to be the subject of a detailed assessment. Since Petromec was ordered to provide security in the sum of £80,000, it is quite likely that Petrobras will be wholly secured for the recoverable costs of the appeals. If it is not, it will be unsecured only to a minimal extent.
8. The present applications were precipitated by concern on the part of Petrobras that neither Petromec nor its parent company, Petromec Holdings Inc., which has already been joined as a party to the proceedings for the purposes of costs and has consented to an order rendering it liable for the costs awarded to Petrobras in the Upgrade and Total Loss actions, will be able to pay any significant part of the costs for which it is liable. Accordingly, it is feared that those costs will be irrecoverable except to the extent that they are already secured. That concern was clearly well-founded because none of the respondents, including Mr. Efromovich who probably knows more than anyone else about the financial position of Petromec and Petromec Holdings, sought to argue that either company had, or was likely to have, sufficient assets to meet those liabilities.
9. Section 51 of the Supreme Court Act 1981 gives the court a very wide discretion to make whatever order for costs it considers just in all the circumstances, including an order that the costs of the proceedings be paid by someone other than a party to them. If a party wishes to obtain an order that the costs be paid by someone other than an existing party to the proceedings, the first step is to obtain permission to join that person to the proceedings: see CPR Part 48.2. That requires an amendment of the claim form and its service on the new defendant, but in this case all those against whom such orders are sought have been involved in the proceedings in one capacity or another for a long time and were content to deal with the substance of the applications at the first and only hearing.
10. The various strands of evidence relating to the involvement of the different respondents to these applications are closely intertwined, but the positions of the individual respondents positions differ and must therefore be considered separately. Before doing so, however, I think it is helpful to consider the principles that apply to applications of this kind.
11. The jurisdiction to make non-party costs orders has been considered on many occasions, but for present purposes I can take as my starting point the decision of the Privy Council in Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] UKPC 39; [2004] 1 WLR 2807 in which the Board reviewed many of the earlier authorities and sought to summarise the principles that should guide the courts in the exercise of their discretion. The following principles can be derived from paragraphs 25-29 of the Board's opinion:

(1) Although costs orders against non-parties are to be regarded as exceptional, "exceptional" in this context means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense.

(2) The court's discretion will generally not be exercised against "pure funders", that is, those with no personal interest in the litigation, who do not stand to benefit from it, are not funding it as a matter of business, and in no way seek to control its course.

(3) Where a person who is not a party to the proceedings not merely funds those proceedings but substantially also controls or at any rate is to benefit from them, justice will ordinarily require that, if the proceedings fail, he will pay the successful party's costs because he is "the real party" to the litigation.

(4) A person who promotes and funds proceedings by an insolvent company solely or substantially for his own financial benefit should be liable for the costs if the claim or defence or appeal fails. However, it may not be appropriate to make an order to that effect where the person against whom it is sought is a director or liquidator who can realistically be regarded as acting rather in the interests of the company (and more especially its shareholders and creditors) than in his own interests.

12. Furthermore, the action of the person against whom an order is sought must have been instrumental in causing the applicant to incur the costs of the litigation which he is seeking to recover since in the absence of such a causative link it will not normally be just to make an order of this kind: see the discussion of this question by Rix L.J. in Goodwood Recoveries Ltd v Breen [2005] EWCA Civ 414 at paragraph 60-74.
13. It is convenient at this point to refer to two of the earlier authorities on which Mr. Neish relied, Metalloy Supplies Ltd v MA (UK) [1997] 1 WLR 1613, which was referred to in Dymocks v Todd, and Taylor v Pace Developments Ltd [1991] BCC 406, which was not and which does not appear to have been cited to the Board. In Taylor v Pace Developments the plaintiff succeeded in an action against a company which was hopelessly insolvent and therefore unable to pay the costs awarded against it. He therefore applied for a non-party costs order against the managing director and sole beneficial shareholder who was taken to have been aware at all material times of the company's financial position. Lloyd L.J., with whom the other members of the court agreed, pointed out that the controlling director of a one-man company will inevitably be the person who causes costs to be incurred if he causes the company to defend the proceedings, but in his view that was not sufficient by itself to justify making him liable for the plaintiff's costs since it would involve too great an inroad into the principle of limited liability.
14. Similar sentiments were expressed by Millett L.J. in the Metalloy case in which the plaintiff was a company in liquidation. The claim was dismissed after the plaintiff failed to comply with an order that it provide security for the defendant's costs and an application for a non-party costs order was made against the liquidator. The judge granted an order to that effect, but it was set aside on appeal. Waller L.J. at page 1618C-F expressed the view that ordinarily where the claimant is an insolvent company the appropriate remedy for the defendant is to apply for security for costs. Although the court has jurisdiction to make a non-party costs order against a liquidator, it should only consider doing so in exceptional cases and some element of impropriety would normally be required to justify doing so. Millett L.J. pointed out that it is not an abuse of process or in any way improper or unreasonable for an impecunious claimant to bring proceedings simply because he does not have the means to pay the defendant's costs. However, he considered that a non-party costs order might properly be made where the person against whom it was sought was the real party interested in the outcome of the suit or where he had been responsible for bringing the proceedings in bad faith or for some improper motive. Where, however, the proceedings had been brought bona fide and for the benefit of the company, the company was the real claimant and to make a non-party costs order against a director who had been responsible for the conduct of the proceedings would erode the doctrine of corporate liability.
15. Mr. Neish relied on these two cases in support of a submission that the right way for Petrobras to protect its position in this litigation was to obtain security for its costs. However, he did not go so far as to submit that that was an exclusive remedy and on the authorities he clearly could not do so. I accept that the availability of protection in that form and the extent to which it has been sought and obtained are factors that the court can take into account when exercising its discretion to make a non-party costs order, but they can be no more than that.
16. Finally, I must refer once again to the recent decision of the Court of Appeal in Goodwood Recoveries Ltd v Breen. The court in that case was concerned once again with the position of a director and shareholder of a company who controls and supports litigation by the company in which he is interested. Rix L.J., with whom May L.J. agreed, commented on the passages from the judgments in Taylor v Pace and Metalloy to which I have already referred, saying that the case of a company which defends a claim is not necessarily the same as that of a company which initiates a claim and that it is relevant to focus not only on the bona fides of the non-party but also on his interest in the litigation. Having then referred to Dymocks v Todd, he concluded in paragraph 59 of his judgment that the law had moved a considerable distance in refining the position put forward in Taylor v Pace and that

"Where a non-party director can be described as the "real party", seeking his own benefit, controlling and/or funding the litigation, then even where he has acted in good faith or without any impropriety, justice may well demand that he be liable in costs on a fact-sensitive and objective assessment of the circumstances."

17. On the basis of these authorities Mr. Hancock Q.C. identified three factors which he submitted are of particular relevance to the exercise of the court's discretion to make an order for costs against a person not a party to the litigation, namely, the exercise of control over the litigation, the provision of funds required to support it and an interest in the outcome of the proceedings. He submitted that the presence of any one or more of these factors could be sufficient to justify exercising the court's discretion in favour of making such a order, although he accepted that the order should properly reflect the nature and extent of the respondent's responsibility for the maintenance of the litigation. It has not been suggested that the commencement or conduct of either of the two actions with which I am concerned was motivated by any improper considerations or tainted by bad faith. In my view, therefore, Mr. Hancock was right to identify those as the most important factors to bear in mind when considering the individual applications before me.
18. Before turning to consider those applications, however, it is necessary to say a little more about the various persons and companies involved in the litigation. The general nature of their involvement in the P36 project is described in the two judgments to which I have already referred, but on those occasions I was concerned only with the contractual relationships between the different companies involved and although I made certain findings about the incorporation of Petromec and Petro-Deep, those were not essential matters in dispute. My findings should therefore be regarded as no more than part of the narrative background to the real issues in those two actions.
19. The P36 project was conceived by Mr. Efromovich and brought to fruition by him through Maritima, a Brazilian company of which he was the managing director and majority shareholder, and other companies incorporated specifically for the purpose. Maritima was incorporated in 1985 for the purposes of carrying on the business of providing engineering services to the offshore petroleum industry. It had a long and successful history of trading with Petrobras. Mr. Efromovich owns just under 60% of the shares in the company, the balance being owned by a company called Synergy Group Corporation represented by Danielle Efromovich Mayo. There is no direct evidence of who owns the shares or beneficial interest in Synergy Group Corporation, but there are grounds for thinking that Mr. Efromovich is one of the beneficial owners of that company.
20. Petromec Inc. was incorporated in the British Virgin Islands in 1997 for the sole purpose of carrying out one aspect of the P36 project. It is a wholly-owned subsidiary of Petromec Holdings Ltd which was incorporated in the Bahamas on 5^th November 1997 with an authorised share capital of $5,000. There is evidence to which I shall come in a moment that one of the directors of Petromec is a company called Hamilton Management Services Ltd, a wholly-owned subsidiary of Hamilton Trustees Ltd, a company incorporated in Guernsey which provides a range of fiduciary services to various clients around the world. Documents that were disclosed in the Upgrade action and included in the bundles prepared for the trial show that a Mr. Timothy Simon Howarth is, or an any rate was in 1999, one of its directors. I infer that Petromec Holdings was incorporated simply to hold the shares in Petromec and therefore also for the sole purpose of the P36 project. A company search in the Bahamas has failed to reveal who are the shareholders of Petromec Holdings, but other documents disclosed in the Upgrade action show that Mr. Howarth was one of its directors as well. I am satisfied that he is the same Timothy Howarth who is a director of Hamilton Trustees and who provided a witness statement on behalf of Devonshire in opposition to the present application. Petromec Holdings appears to have no assets nor any expectation of acquiring any.
21. Devonshire was established in 1995 for the purposes of purchasing the secured indebtedness of Midland & Scottish Resources Plc ("MSR") which became the ultimate holding company of Societa Armamento Navi Appoggio S.p.A. ("SANA"), the original owner of P36. The acquisition of MSR's indebtedness was one of a number of elements in the complex arrangements put in place to enable title in the vessel to be transferred from SANA to Petrobras against payments spread over a period of 12 years. In 2003 Devonshire acquired the whole of the share capital of MSR which was then in liquidation. The shares in Devonshire are owned by two companies, Kappa Ltd and Hamilton Nominees Ltd, which are themselves wholly owned by Hamilton Trustees. Its sole director is Hamilton Management Services. Mr. Howarth says in his statement that Hamilton Trustees manages Devonshire and holds its interest in Devonshire as a trustee of the Synergy Trust which is a discretionary trust "established by Messrs German Efromovich and Jose Efromovich". He also says that Hamilton Trustees "has complete discretion over the control of beneficial ownership of the trust assets" and that "no contracts or agreements exist between Hamilton Trustees and any other person governing the manner in which Hamilton Trustees exercises its discretionary powers".
22. The main issue that arises in one way or another on all the present applications is the degree of Mr. Efromovich's personal responsibility for the commencement, financing and prosecution of the Upgrade and Total Loss actions and the extent of his interest, if any, in their outcome. The thrust of the submissions made by Mr. Hancock was that Mr. Efromovich personally controlled all the companies in question, which he used as vehicles for his business affairs, that he provided all the funds needed to support the litigation and was personally interested in its outcome as one of the discretionary beneficiaries of the Synergy Trust which was the ultimate holder of the shares in all of them. Mr. Neish, however, submitted that the evidence before the court was not sufficient to support those conclusions and that in the absence of better evidence the application against Mr. Efromovich must fail.
23. Mr. Neish's submission would be more attractive were it not for the fact that the person best placed to inform the court about the nature of Mr. Efromovich's role in the litigation, the source of the funds used to finance it and the nature and extent of his interest in the companies in question is undoubtedly Mr. Efromovich himself. However, he has chosen not to say anything about these matters beyond what he has already said in other contexts and for other purposes. Although the thrust of Mr. Hancock's submissions was clear from the witness statements of Mr. Williams served in support of these applications, and although he has chosen to be represented by solicitors and counsel, Mr. Efromovich has not attempted to meet the arguments against him by providing the relevant information, all of which lies peculiarly within his own knowledge. Indeed, although I made it clear to Mr. Neish that I was willing to consider, even at such a late stage, an application for an adjournment to enable him to file further evidence, the invitation was declined. In those circumstances I can only conclude that Mr. Efromovich was content to allow me to draw whatever inferences I thought appropriate from the evidence before me. In doing so he must either have been willing to take the risk that I might make findings more adverse to him than would have been the case if I had had the full picture, or that, however adverse the findings I made, they could be no worse than I would have made if I had known the true position. In view of that I approach the evidence bearing in mind Mr. Neish's submission that "nothing comes from nothing", but also bearing in mind that Mr. Efromovich could have provided me with the grounds for rejecting Mr. Hancock's submissions, if indeed such grounds exist.
24. At this point it is necessary to describe how Petromec came by the funds necessary to prosecute the Upgrade and Total Loss actions. In July 2001 Petromec received a little over US$147 million out of the sum that Petrobras was obliged to pay following the loss of P36. That was the so-called "Loss Payment" which represented the balance of the amounts payable under the bareboat charter discounted for acceleration. According to Mr. Efromovich, some of it was used to pay debts arising from the upgrade work and the rest, apart from a sum of US$2 million, was paid to Petromec Holdings. I shall have to return to that at a later stage. The sum of US$2 million which Petromec retained was used to fund the Upgrade and Total Loss actions, but had been exhausted by about October 2003. At that point Devonshire made the sum of £1.5 million available to Petromec under the terms of an undated loan agreement in order to enable it to continue the litigation. That agreement envisaged that the loan would be repaid from Petromec's share of the balance of the Loss Payment which was then the subject of a dispute between the parties and had been paid into court. However, although Petromec did succeed in establishing that it was entitled to an additional amount, the funds remained in court and were eventually paid out to Petrobras on my order in partial satisfaction of the judgment it had obtained against Petromec in the Upgrade action.
25. On 10^th May 2004 Devonshire entered into a second loan agreement with Petromec under which it agreed to increase the amount it would make available to £2 million. The agreement stipulated that the loan was to be used exclusively for the funding of the litigation, but it has recently become clear that part of the funds were in fact used to defray the administrative running costs of Petromec, Petro-Deep and Petromec Holdings. I think one can safely infer, therefore, that Petromec Holdings did not retain any significant part of the funds it received from Petromec following the distribution of the Loss Payment in July 2001. It also appears that a small sum was drawn down under the loan to pay the outstanding fees of the solicitors who had acted for Maritima up to October 2003. In all £1,779,124 was drawn down under that loan agreement.
26. The loan made under the terms of the agreement dated 10^th May 2004 was to be repaid by 31^st October 2004, but since Petromec did not have the necessary funds available to make that repayment other steps were taken to clear the debt. By a novation agreement dated 29^th November 2004 Devonshire transferred its rights and obligations under the second loan agreement to Petromec Holdings on payment of the sum of £1,887,848 then said to be outstanding. According to Mr. Howarth, that sum was paid in two instalments on 12^th and 14^th January 2005. By a deed of waiver of the same date Petromec Holdings released Petromec from its liability to repay the loan and in return Petromec issued further shares to Petromec Holdings pursuant to a share subscription agreement of unknown date. However, since Petromec was already a wholly-owned subsidiary of Petromec Holdings it is difficult to see what benefit the latter received from that arrangement. The source of the funds used by Petromec Holdings to repay Devonshire has not been specifically identified in the evidence. Since October 2004 Petromec Holdings has, according to Mr. Efromovich, provided the funds needed by Petromec to continue the litigation. In particular, it agreed to provide a further £1 million to be used exclusively for that purpose. Again, the source of those funds has not been identified.
27. At this point it is convenient to consider the applications against each of the respondents separately.

The application against Maritima

28. It is clear from the manner in which the P36 project was conceived and organised, as well as from the evidence given in the Upgrade action and from what Mr. Efromovich himself has said about it, that Maritima was a well-established company in the offshore engineering industry in Brazil and that it had undertaken numerous projects for Petrobras over many years. It is also clear that Mr. Efromovich was the person who controlled its operations and handled all negotiations of any significance on its behalf. I have no doubt that in practical terms it was his company and indeed he was both the managing director and the majority shareholder. (His own description of his position was 'managing partner'.) It is also clear, however, from the way in which the P36 project was established that he sometimes found it advantageous to use a single purpose vehicle, that is, a company incorporated for the sole purpose of carrying out a particular project, as the contracting party instead of Maritima. In the present case Petromec, Petromec Holdings, Petro-Deep and Devonshire were all incorporated solely for the purposes of carrying out one or other aspect of the P36 project.
29. The first formal record of the parties' commitment to the project was the Memorandum of Agreement between Maritima and Petrobras signed in November 1996 under which Maritima, or a company to be incorporated and solely owned by it, would acquire title to the vessel and upgrade her for service in the South Marlim oilfield. In the event, however, the only evidence about the ownership of Petromec (which in fact comes from Mr. Efromovich) is that it is wholly owned by Petromec Holdings and I see no reason to doubt that. In my view there is nothing to justify the conclusion that Maritima owns or is beneficially interested in Petromec or Petromec Holdings or that it has exercised any control, formally or informally, over either of them. Moreover, in view of the way in which the shares in Devonshire are held, I think it most unlikely that it has. That was not the way in which Mr. Efromovich did business. Rather, he personally represented all the companies involved in the project; he was personally responsible for all the negotiations of any substance with Petrobras; and he personally decided what steps should be taken by whichever company was appropriate.
30. For much the same reasons I am unable to accept that Maritima either provided any of the funds needed by Petromec to prosecute the proceedings or that Maritima was interested in the outcome of the action in a way that would be relevant for present purposes. Funding for the litigation originally came from Petromec's share of the Loss Payment. There is no reason to think that if funds had not been required for that purpose any part of them would have been paid to Maritima for its own use, though doubtless they would have represented capital available for its business if Mr. Efromovich had wanted to make use of them for that purpose. In that very limited sense it might be said that Maritima was interested in the funds, but that falls a long way short of saying that it provided the funds that got the litigation going. Similarly, it might be said that Maritima was interested in the outcome of the litigation, but again only as a potential recipient of additional working capital.
31. For these reasons I am satisfied that none of the factors that would support a non-party costs order are present so far as Maritima is concerned and the application for such an order against it must be dismissed.

The application against Devonshire

32. It is common ground that Devonshire did make funds available to Petromec to enable it to continue the litigation beyond about October 2003. It did so by making Petromec two successive loans for limited periods which were repaid by the middle of January 2005. The repayment did not depend on the outcome of the proceedings and Devonshire had no other interest in them, apart from a brief period during which it was itself a party to the Total Loss action in order to protect its own position. In his witness statement Mr. Howarth likens Devonshire's position to that of a bank, which is not an unreasonable way in which to describe it, although I doubt that any commercial institution would have been willing to lend Petromec a similar amount on the same, or perhaps any, terms. There is no evidence that Devonshire exercised any control over the conduct of the litigation, other than by making it possible through the provision of the loans for Petromec to continue it. In the circumstances I do not think that there are sufficient grounds for making a non-party costs order against Devonshire either.

The application against Mr. Efromovich

33. As I indicated earlier, the case against Mr. Efromovich depends to a large extent on what inferences can properly be drawn from such evidence as there is of his participation in the organisation and management of the project, of the relationship between the various companies through which it was carried out and of the conduct of the litigation itself. Of the three factors mentioned earlier, namely, control of the litigation, the provision of funds and an interest in the outcome of the proceedings, there can be little doubt that, whatever may be the case in relation to the other two factors, Mr. Efromovich exercised complete control over all the litigation between Petromec and Petrobras. It was quite apparent from the evidence he and others gave at the trial of the preliminary issues in the Upgrade action that he controlled all the major aspects of the business relating to the P36 project, conducted all the main negotiations and took all significant decisions. No one else occupied a comparable role and I am aware of no one else who might have taken the decision to commence the proceedings against Petrobras or who had authority to determine how they should be conducted. When it was necessary for evidence to be given on behalf of Petromec it was given by Mr. Efromovich in a manner consistent with his having full knowledge of, and complete control over, its affairs, as well as those of Petro-Deep and Maritima. This is a case, therefore, in which it can properly be said that the litigation would not have taken place at all without the approval of Mr. Efromovich and his active involvement.
34. The question of funding, however, raises more difficult questions and can conveniently be considered in conjunction with that of an interest in the outcome of the litigation, since the answer to both questions turns largely on whether it can properly be inferred that all the companies which I have mentioned were simply vehicles though which Mr. Efromovich conducted his personal business affairs. In many respects the evidence is less complete than I would have wished, but I am entitled to draw inferences from the facts established in evidence, provided that I am satisfied on the balance of probabilities that it is right to do so.
35. In July 2004 Mr. Efromovich made a witness statement in the Upgrade action in support of an application by Maritima and Petromec for a stay of execution pending an appeal of the judgment entered against them at the conclusion of the trial of the preliminary issues. In that statement he explained how Petromec had disposed of its share of the Loss Payment and stated that (apart from its claims against Petrobras) its assets were limited to a sum of cash on deposit with the bank to secure guarantees given as security for costs in the Upgrade and Total Loss actions. As far as Maritima was concerned, he stated that it had never had any subsidiaries and that its assets were limited to an offshore supply vessel that had been laid up since August 2001 and some licences to develop small onshore oilfields purchased with loans which were equal in amount to the value of the assets. He said that Maritima had traded at a loss in 2003.
36. The evidence that neither Maritima nor Petromec had any assets to speak of has to be viewed in the context of two other pieces of evidence. The first is that in the Upgrade action Mr. Efromovich accepted that Petromec was expecting to make a profit of around US$50 million from the upgrading of the P36. It does not follow, of course, that it did so, but it is clear that large sums of money were flowing through the company and there is no evidence from Mr. Efromovich that, if one ignores for the moment the judgment obtained by Petrobras in the Upgrade action, Petromec failed to make any money out of the project. The second is the reference he made in that statement to the Maritima website which he described as a marketing tool for projects involving different companies, presumably under the Maritima brand name.
37. Taking these matters into account together with the other evidence to which I have already referred, I am satisfied, first, that Mr. Efromovich controlled Maritima which he used as his primary business vehicle for undertaking offshore engineering projects; second, that it was his practice to make use of one or more single purpose companies to carry out each individual project; third, that the single purpose companies were not themselves formally brought into the Maritima group by using Maritima as the holding company, but were owned by one or more unidentified persons, although they were all controlled by Mr. Efromovich; and fourth, that the funds generated by those projects were not retained by the single purpose companies or by Maritima.
38. Mr. Howarth's statement shows that the beneficial interest in one of the companies incorporated at the behest of Mr. Efromovich for the purpose of implementing the P36 project, Devonshire, was ultimately held by the discretionary beneficiaries of a trust established by Mr. Efromovich and his brother. Mr. Howarth has obviously chosen his words with some care and does not say who the beneficiaries of that trust are, but the circumstances point to the conclusion that they are likely to include Mr. Efromovich and his brother and perhaps other members of their families. If that were not the case, I think the overwhelming likelihood is that either Mr. Howarth or Mr. Efromovich would have made that clear. Although Mr. Howarth says in his statement that Devonshire is managed by Hamilton Trustees, he does not say anything to indicate that it actively carries on business, even as an investment vehicle.
39. As I have said, the minority shareholding in Maritima is owned by Synergy Group Corporation and in view of the similarity of names it would be a surprising coincidence if that company were not related to the Synergy Trust. However, the inference does not rest on coincidence alone because there is some positive evidence in the form of press material exhibited to the seventh witness statement of Mr. Williams made on behalf of Petrobras in connection with an earlier application that Mr. Efromovich controls Synergy Group Corporation. In those circumstances I think it is more likely than not that Synergy trust is the beneficial owner of the minority shareholding in Maritima and that by that route Mr. Efromovich has a further interest in the company.
40. There is no direct evidence of who owns the shares in Petromec Holdings or of the ultimate destination of the funds distributed by Petromec to Petromec Holdings in July 2001. Nor is there any direct evidence of the source of the funds which Devonshire made available to Petromec Holdings under the two loan agreements or of the source of the funds used by Petromec Holdings to repay the loan and to make available the additional £1 million to finance the litigation. However, it is interesting to note that Hamilton Management Services signed the loan agreements between Devonshire and Petromec on behalf of both companies, in each case as a director. This evidence, together with the evidence that Mr. Howarth is a director of both Petromec and Petromec Holdings, lends some support to the conclusion that Petromec Holdings is beneficially owned by the Synergy Trust. In the light of all the evidence I have no doubt that, whatever their precise provenance, the funds all came from sources under the control of Mr. Efromovich and were made available at his direction.
41. Mr. Hancock submitted that in one way or another Mr. Efromovich was the beneficial owner of all the funds that were made available to Petromec to fund the litigation, so that they were in substance 'his' money. However, I do not think it is possible to go quite that far. For the reasons given earlier I am satisfied on the balance of probabilities that all the funds were beneficially owned by the Synergy Trust of which he was one of the discretionary beneficiaries and that to that extent he had an interest in them. Although Mr. Howarth says, and I accept, that there is no contract or agreement between Hamilton Trustees and any other person governing the manner in which it exercises its discretionary powers as trustee of the Synergy Trust, I find it difficult to believe that Mr. Efromovich and his brother have not given, or do not from time to time give, the trustee some indication of the manner in which they wish it to exercise its powers and are thus able to exercise a considerable degree of practical control over the assets of the trust. In any event, I am satisfied that funds under the control of the trustee could be made available at the request of Mr. Efromovich to meet his business and personal requirements.
42. It follows, in my view, that, as Mr. Hancock submitted, Mr. Efromovich has an interest in the outcome of the litigation. As I mentioned earlier, Petromec was originally expecting to make a substantial profit out of the P36 project and in the Upgrade action it is seeking to recover the additional costs it incurred as a result of the change of specification from South Marlim to Roncador. To the extent that it is successful it will preserve that profit. As already indicated, there is every reason to think that any profit generated by the project will be withdrawn from Petromec to form part of the assets owned by the Synergy Trust and therefore available to Mr. Efromovich.
43. In these circumstances it is appropriate in my view to make a non-party costs order against Mr. Efromovich. He is the person who has controlled and continues to control the litigation and who has been responsible for making available the funds required to maintain it, funds in which he had a personal interest. As will be apparent from what I have already said, this is not one of those cases in which a director or shareholder of an insubstantial company has commenced and maintained litigation primarily for the benefit of the company itself. Here I am satisfied that Mr. Efromovich is one of the people, if not the only person, who stood to gain from the outcome of the Total Loss action, had it been successful, and who still stands to gain from the outcome of the Upgrade action, if that is ultimately successful. I am satisfied that he is the real party to the litigation. I do not think that the availability of protection in the form of orders for security for costs provides a good reason for refusing a third party costs order in this case. Petrobras has in fact obtained security for part of its costs of the Upgrade action and should not be penalised for the fact that the security it has obtained may fall short of its recoverable costs. It holds no security in the Total Loss action because at the time when applications were originally being considered there were sufficient funds in court to cover any costs that Petrobras was likely to incur in that action. Had security been ordered, however, it is more likely than not that it would have to have come from the same sources as those from which the funds needed to pay Petromec's own costs have come. I think that there is force in Mr. Hancock's submission that it is no more unjust to make the backers of an insolvent company liable for the costs of other parties under circumstances of the kind that arise in the present case than it is to require them to provide security for costs on its behalf.
44. Mr. Neish submitted that this application is either too late, because it ought to have been made at the conclusion of each of the trials in question, or premature, because it should await a detailed assessment of the costs. I am unable to accept that. Although it is still uncertain how much of the costs which Petromec has been ordered to pay Petrobras will remain unsecured following a detailed assessment, I am satisfied that the sum involved is likely to be substantial. In those circumstances I am satisfied that the right course is to make an order that Mr. Efromovich be added as a party to the proceedings and that he be jointly and severally liable with Petromec and Petromec Holdings to pay Petrobras the costs awarded under existing orders for costs in both the Upgrade and Total Loss actions.